Supply Chain Financing

9 Months Ended

Sep. 30, 2011

Supply Chain Financing [Abstract]

Supply Chain Financing

(13) Supply Chain Financing

We are party to a supply chain financing arrangement with a third party. Under this arrangement, we essentially assign our rights to purchase needle coke from our supplier to the financing party. The financing party purchases the product from our supplier under the standard payment terms and then immediately resells it to us under longer payment terms. The financing party pays the supplier the purchase price for the product and then we pay the financing party. Our payment to the financing party for this needle coke includes a mark up (the "Mark- Up"). The Mark-Up is a premium expressed as a percentage of the purchase price. For the first nine months of 2011 the Mark-Up was based on 2 month LIBOR plus a margin of 2.75%. The Mark-Up is subject to quarterly reviews. This arrangement helps us to maintain a balanced cash conversion cycle between inventory payments and the collection of receivables. Based on the terms of the arrangement, the total amount that we owe to the financing party may not exceed $49.3 million at any point in time.

We record the inventory once title and risk of loss transfers from the supplier to the financing party. The amount recorded as a liability to the financing party was $25.0 million and $22.0 million at December 31, 2010 and September 30, 2011, respectively.

For the three months ended September 30, 2010 and 2011, the financing party invoiced us $47.1 million and $35.6 million, respectively, for purchases of inventory under this arrangement. For the three months ended September 30, 2010 and 2011, we recognized a Mark-Up of $0.4 million and $0.1 million, respectively, as interest expense.

For the nine months ended September 30, 2010 and 2011, the financing party invoiced us $153.8 million and $127.1 million, respectively, for purchases of inventory under this arrangement. For the nine months ended September 30, 2010 and 2011, we recognized a Mark-Up of $1.3 million and $0.8 million, respectively, as interest expense.